A life settlement policy is a life insurance policy that is being offered for sale by the policy owner. A life settlement policy can be one of several types and owned by many different entities. A corporation may offer a life settlement policy on the life of a retiring or exiting executive. The policy offered by the corporation may have been a key employee policy previously indemnifying the corporation in the event of the executives death. Or, it may have been an executive perk to the executive providing coverage beyond the corporate group policy. A policy can come in many forms, it could be a term policy allowing conversion to a permanent policy, it may be universal life policy, or even a whole life policy.
Term insurance is often an overlooked asset as life settlement policy. Term insurance comes in many forms, from group term to individually owned term or, as in a recent case I worked with, trust owned.
A life settlement policy is usually the result of insurance for which the use is no longer there. In the event of the trust owned policy, the need for the death benefit vanished when the last child/beneficiary graduated from collage and started full time employment. In another case, the policy resulted from the trust being dissolved due to the death of a special needs beneficiary. In this case the policy provided a source of capital to the parents who where anticipating moving to an adult/assisted living community.
I also recently worked with an attorney representing a client who was selling her business interest. As part of the settlement it was agreed the owner would keep her corporate owned life insurance policy. This policy became a life settlement and, provided her some unexpected cash. Due to the sale of this policy, she was able to establish an educational fund for her grandchildren. Something she was reluctant to fund prior the discovery that her policy had substantial value.
Again, the policy added a great deal of flexibility to the estate and financial planning of the clients.
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